How $750k Can Go as Far as $1 Million in Retirement

Would you rather have $750,000 or $1 million? On its face, this question seems like a no-brainer. One million dollars is a larger number than $750,000, so that has to be the correct answer – right?

What if we asked the question in another way. Would you rather have $1 million in a traditional IRA, or $750,000, evenly distributed between a taxable brokerage account, a traditional IRA, and a Roth IRA? Now this question becomes a bit more challenging to answer.

Retiring with $1 Million

In a recent video about retiring with $1 million, we discussed four hypothetical retired couples:

Average Couple: Saved $1 million in traditional IRAs
Investing Couple: Saved $1 million in a taxable brokerage account
Ideal Couple: $1 million saved between a brokerage account, a traditional IRA, and a Roth IRA.
Unicorn Couple: Saved $1 million in Roth IRAs

All four couples had the same Social Security benefits.

Based on the same life expectancies, the first couple was able to spend $84,000 per year throughout their retirement, the second couple was able to spend $86,500, the third was able to spend $91,500, and the fourth, $95,500. We were trying to illustrate the difference between the types of investment accounts available to individuals. We’ve previously written about the difference between traditional and Roth investment accounts.

Granted, if someone had saved $1 million to a traditional IRA over their lifetime, they would likely have received lots of tax deductions over the years. However, compare them to someone who had accumulated $1 million in a Roth IRA. They would have likely missed out on those same tax deductions because contributions to a Roth IRA are not tax-deductible.

How $750k Can Go as Far as $1 Million in Retirement

GRAPHIC 1

Nonetheless, the point stands that four couples with the same earnings history and the same Social Security benefits, all with $1 million saved in various types of investments accounts, would likely have drastically different retirements. In large part due to each couples’ tax situation, as you can see in the graphic above.

So, How Can $750k Go as Far as $1 Million in Retirement?

We wanted to take this case study one step further once we reviewed the data. Using our same assumptions for the first case study, what if we added a fifth couple. The fifth couple had “only” accumulated $750,000, but, like the ideal couple, they saved their money between a taxable account, a traditional IRA, and a Roth IRA. And using the same 80% confidence score in our Monte Carlo trial to solve the amount of annual, after-tax spendable income this couple could have. The results were interesting.

GRAPHIC 2

What we found was this fifth couple was able to spend $84,000 per year throughout their retirement. The interesting thing about that number is it is the same amount of after-tax spendable income as the couple who retired with $1 million in a traditional IRA. Over a lifetime, this equates to $3,505,168.

So the next time someone asks you what seems like a loaded question: Would you rather have $750,000 or $1 million? Be sure to ask a follow-up question: What type of account is the money held in? If they look at you like you’re crazy, be sure to forward them this post!

If you want to understand how you can employ strategies like this, schedule a complimentary consultation below. Or give us a call at (913) 393-1000. We’re happy to help.

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The views expressed represent the opinion of Modern Wealth Management a Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.

RightCapital is a financial planning software that integrates retirement, tax, investment, and estate planning, allowing advisors to create personalized plans based on client data. It uses scenario modeling to project future outcomes, incorporates tax-efficient strategies, and tracks progress over time. The software considers a limited set of asset classes, such as U.S. Large Growth, International Equities, Emerging Markets, Bonds, and Cash, which are broad categories and not specific securities or products. These asset classes are not exhaustive, and other investments with similar or superior characteristics may exist. Assets not classified into these categories are grouped under “Other.” RightCapital cannot guarantee a complete or accurate depiction of a user’s financial situation or goals. In its Monte Carlo Simulation, asset classes are grouped into six categories with estimated return assumptions based on historical index data, not actual investments. Past performance of indices does not guarantee future results, and no investor has achieved the exact performance shown.

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